If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:
A)less than 4.
B)equal to 4.
C)greater than 4.
D)equal to 0.75.

Name: If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is: A)less than 4. B)equal to 4. C)greater than 4. D)equal to 0.75.
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Question

Quizplus · Accepted Answer

The tax multiplier is calculated as -MPC/(1-MPC). With an MPC of 0.75, the tax multiplier is -0.75/(1-0.75) = -3, which is less than 4.

If the Marginal Propensity to Consume Is 0